More

    Vietnamese Stock Market: An Emerging Force in Southeast Asia

    Until the recent global market turmoil, Vietnam’s economy and stock market stood out as exemplary performers, not just regionally, but globally as well. The nation has established itself as the premier destination for foreign direct investment (FDI) in Southeast Asia, a position further solidified by shifts in the global economy, particularly the ongoing decoupling between the U.S. and China. Despite being classified as a frontier market, Vietnam boasts a surprisingly liquid stock market, evident from the fact that as of June 2022, 56 listed companies had market capitalizations exceeding USD 1 billion.

    When the COVID-19 pandemic struck, it inflicted significant disruptions on Vietnam’s export-driven economy due to widespread lockdowns and supply chain bottlenecks. Interestingly, local investors began to divert excess capital into the stock market instead of more traditional safe havens like gold or real estate. This influx helped to counterbalance foreign investor outflows during the pandemic. As a result, Vietnam’s stock market emerged as the best performer in the ASEAN region in 2021, ranking seventh globally, with the benchmark VN-Index rising by 35% year-on-year. This marked the third consecutive year of growth for the VN-Index, following increases of 7.6% and 14.7% in 2020 and 2019, respectively.

    Vietnam’s economic outlook remains promising despite the setbacks caused by the pandemic. According to World Bank estimates, the country is expected to grow by 5.5% in 2022. While inflation poses challenges for many countries globally, Vietnam has managed to keep its inflation rates “under control,” which bodes well for its economic stability. This environment is conducive for ongoing stock market growth, positioning Vietnam as one of the leading stock markets on the global stage.

    Understanding Vietnam’s Stock Market

    What sets Vietnam apart among frontier markets is its dual stock exchange system. The Ho Chi Minh Stock Exchange (HoSE) and the smaller Hanoi Stock Exchange (HNX) list several hundred stocks, while the Unlisted Public Company Market (UPCoM) features nearly a thousand stocks. However, UPCoM stocks are subject to certain restrictions, including the inability to trade on margin, and they tend to have lighter trading volumes and fewer regulatory obligations compared to those listed on HoSE and HNX.

    In a significant shift, all stocks listed on the Hanoi Stock Exchange are set to transition to the HoSE by 2023, with the HNX continuing to operate primarily as a bond exchange. The HoSE is also scheduled to begin receiving shares from UPCoM by 2025. This centralization is expected to streamline market operations and enhance the overall investment environment.

    Brokerage and Stock Market Reforms

    Recent reforms have simplified the brokerage account opening process significantly. Now, local investors can open accounts online, eliminating the need for in-person visits to brokerage offices. The entire process can take mere minutes, allowing investors to quickly set up accounts using user-friendly smartphone apps. Brokerages have also formed partnerships with banks, facilitating a more integrated financial service offering.

    As of mid-2022, Vietnam has approximately 5.65 million stock accounts, translating to around 5.7% of the population holding a brokerage account. However, a significant number of these accounts remain inactive or underfunded; some local traders even maintain multiple accounts to gain broader access to brokerage research. The surge in new investors has occasionally overwhelmed Vietnam’s existing trading infrastructure, resulting in technical issues like system crashes and delayed market executions.

    Fortunately, these challenges are being addressed as part of a broader strategy to elevate Vietnam’s status from a frontier to an emerging market prior to 2025. This upgrade is crucial, as it would facilitate access to significantly larger pools of foreign investment—USD 6.8 trillion, compared to just USD 95 billion for frontier markets.

    Achieving this goal is no small feat. Vietnam’s Ministry of Finance collaborates closely with major index providers like MSCI and FTSE Russell to ensure that all relevant data and legal frameworks align with international standards. Amendments to important laws, including the Law on Securities in 2019 and revisions to the Law on Investment and Business in 2020, have already made positive strides in areas such as capital investment procedures, investor access to information, and corporate governance.

    Moreover, these reforms have addressed long-standing foreign investment ownership limits, previously capped at 49% for most publicly traded companies. Legal pathways now exist for companies to either increase foreign ownership to 50% or higher or to eliminate these restrictions entirely.

    In addition to structural reforms, Vietnam’s government is working to enhance its trading infrastructure. Updates to the transaction systems aim to enable share transfers to investor accounts within T+2 trading hours, as opposed to the previous T+3. A new Central Counterparty (CCP) model for transaction settlement and clearing will lift mandatory cash pre-funding requirements, a move that is expected to significantly improve market liquidity and align Vietnam with global practices.

    Cracking Down on Stock Market Manipulation

    In a proactive effort to strengthen market integrity, the State Securities Commission of Vietnam (SSC) issued more than 300 decisions to sanction administrative violations in 2021. The most common infringements included late transaction reports and the non-disclosure of mandated information. The crackdown intensified in 2022, marked by high-profile arrests of brokerage and corporate executives for alleged stock price manipulation. Notably, the SSC chairman was dismissed, and even the director general of the HoSE faced expulsion from the Communist Party.

    While these actions have certainly rattled the market in the short term, analysts consider this “housecleaning” a step towards establishing a more transparent environment that will ultimately attract foreign investors.

    Recommendations for Development of Vietnam’s Stock Market

    To cultivate a transparent and effective stock market with minimal violations, several measures can be implemented. First and foremost, the legal framework should be refined and brought into synchrony with international standards. This would include imposing strict consequences for violators to enhance investor confidence in market integrity and the safety of investments.

    Secondly, it is vital to foster a stock market populated by organizations with robust financial standing and ethical professional standards. This underpins the efficiency and transparency of market operations, which may necessitate restructuring, such as mergers and acquisitions.

    A third recommendation involves developing effective coordination mechanisms for policy administration concerning the stock market. This should include monetary policies that can adapt to different financial situations, whether tightening or relaxing as needed.

    Lastly, efforts should be made to minimize direct government intervention in market activities. This promotes a market-driven environment and empowers entities to take responsibility for their operations. However, the government should still maintain oversight to ensure compliance and transparency among market participants.

    Hanoi
    scattered clouds
    28 ° C
    28 °
    28 °
    75 %
    2.8kmh
    31 %
    Sat
    28 °
    Sun
    32 °
    Mon
    30 °
    Tue
    28 °
    Wed
    27 °

    Related Articles

    Latest articles

    Leave a reply

    Please enter your comment!
    Please enter your name here

    Trending